Powell’s Pivot - Why a Softer Fed Is Rocket Fuel for Crypto

Rare Crypto
Aug 23
4 min read

The candles were burning bright in getting up to watch/listen to Jerome Powell's speech today; in that he has just cracked the door to easier money—and markets didn’t wait to be asked in. Where the candles are burning to help the listening, they are now in markets.

Why?

In today’s Jackson Hole remarks he signaled that a September rate cut is on the table, shifting from “fight inflation at all costs” to “balance inflation with a cooling jobs market.” That small change in tone, indeed a recognition as to the massive impact AI is having already on workforces, is actually a really big deal in monetary policy terms: it tells investors that the Fed is willing (and needs to) to ease a bit if the economy wobbles, rather than keep the screws tight. Stocks jumped, bond yields slipped, and the dollar cooled on the day.

In doing so, the chair emphasised cooling in the US labour market and subtly (and definitely unwillingly) acknowledged the utter-genius in Trumps tariff-related macro-economic enablement of de-globalisation (thank the heavens!); where price moves look more “one-time” than persistent—code for “we can cut if jobs wobble without re-igniting inflation.” That’s a significant policy pivot from the hard-nosed control-paradigm of singular inflation-fighting toward a more pragmatic dual-risk balance that tolerates easier conditions if employment softens. Given this, markets read it as a green light for at least a quarter-point in September.

That’s textbook “liquidity returning" stuff - rocket fuel for crypto.

What actually changed

Powell didn’t declare victory over inflation. He did say the risks are more balanced now—meaning the Fed can consider trimming rates without immediately re-igniting prices. Traders heard it loud and clear - as did we at Rare - the widely watched CME FedWatch odds for a September cut rose sharply after the speech. In short, the market now expects at least a small cut as a live option.

How markets reacted—fast

As those candles burned to help light up the early morning watching of Powell's speech -

Stocks - The major U.S. indexes have rallied on the hint of easier and smarter policy. Rate-sensitive parts of the market—small caps and homebuilders—led, because lower borrowing costs help them first.
Bonds & the dollar - Yields eased and the dollar slipped—both classic signs the street is pricing in a cut. When the dollar softens, global risk assets, including crypto, can breathe and flourish.

Crypto’s pop—and why it makes sense

When rates fall (or are expected to), two things happen that matter for digital assets -

Discount rates drop. Assets are priced on future potential—yes, including crypto—get an instant math boost when the “hurdle rate” falls.
Dollar down = easier flows. A softer USD reduces the “gravity” on dollar-priced assets, and risk appetite pushes capital further out the curve.

Bitcoin and majors bounced on the Powell hint.

Coverage across mainstream and crypto media has matched the tape being played out; Powell opened the door to September, and BTC, ETH, XRP and SOL, amongst many, also have pushed rapidly and higher on cue. The candles lit green for go!

Why crypto especially likes this (no jargon)

Cheaper money helps “future bets.” Crypto is still a long-term belief asset. Easier policy supports those beliefs getting funded. Cash continues to look a less shiny. If T-bill yields drift lower, staking, DeFi carry, or even simple spot-and-futures basis start to look more attractive versus just parking cash. Thus, the pipes are ready. With spot BTC/ETH ETFs and better custody, institutions can move faster than in past cycles when macro says “go.” (i.e. You don’t need a new thesis—just a new trigger.)

What to watch next (second-order effects)

A friendlier Fed often cools front-end implied volatility. In crypto that can steepen funding curves and widen basis as directional longs return—good for market-neutral yields, but also a sign froth can build. (Have a risk plan.) In easing windows, BTC tends to trade more like equities and against the dollar. That means jobs reports, CPI prints, and Fed chatter will keep steering the tape—regardless of on-chain noise.

If we get a 25 bps cut and “data-dependent glidepath” guidance, money sitting happily in 5% cash begins to shop for incremental return—equities first, but crypto won’t be far behind.

If the market starts pricing deep easing without the data, expect chop. Powell hinted at flexibility, not a free-money flood. Indeed, on top of this pivot, Anthony Pomplian argues, in Crypto-terms, that we’re shifting from consolidation to expansion as fresh demand meets thinner new supply after the halving—his words - this is when bitcoin tends to make its biggest moves!

Summary

Powell didn’t shout “we’re cutting.” He whispered “we might, and soon, if the data keep cooling.” That’s all risk assets needed. Stocks ripped, yields slipped, the dollar dipped—and crypto got a fresh gust of tailwind amid mass institutional adoption and accumulations. If the next data points cooperate, this could be the start of a new “liquidity-lite” phase where digital assets regain their edge; outsized upside to small improvements in financial conditions.

Watch out for the forthcoming full paper!